Last July, reporting LVMH's first-half results, Jean-Jacques Guiony, chief financial officer of LVMH, made a pointed observation: group operating profit increased by only 7 per cent, due to the impact of the biggest currency fluctuations the group had ever seen. At constant exchange rates operating profit would actually have risen 19 per cent.

When asked for his thoughts in January on the outlook for 2009, he remained cautious: “It's difficult to say how things will pan out in 2009 until we know better how things unfold from a currency perspective,” he said. “Volatility is at an unprecedented level and making any predictions is highly risky.”

Most luxury companies find themselves with the majority of their costs in euros but up to 80 per cent of their revenues in other currencies. In the past, they have protected themselves against fluctuations through the use of hedging but in the current economic climate, things change so quickly that, according to Claudia D'Arpizio, luxury goods expert at Bain & Co in Milan: “While currency hedging is a useful technique, we are also advising our clients to focus on pricing.”

Unlike hedging decisions, which originate with a CFO, pricing decisions are made at the brand level.

While brands have always set different prices for different markets, recent currency shifts have opened up wide, unintended differentials in prices for the same product in different markets. This has led to a kind of fashion arbitrage and poses a new management challenge.

In recent years, it was commonplace for British shoppers to jump on aircraft to New York to complete their Christmas shopping with the benefit of a strong pound, but late last year, after the pound fell more than 20 per cent against the euro and more than 25 per cent against the dollar, it was the British who stayed at home, while eurozone and US shoppers descended upon London to snap up bargains, bolstered by heavy discounting on the shop floor.

In December, Eurostar reported a 15 per cent increase in the number of people travelling to London from the continent, many of whom had apparently come with one purpose: to shop. Burberry attributed some of the 20 per cent spike in its third-quarter UK sales to tourist flows from China and Europe.

In response to this mass consumer migration, luxury companies, including Louis Vuitton and Dior, reduced prices in Japan by 7 to 8 per cent late last year, while Chanel, Chloé and Versace reduced their US prices by similar amounts. But even after these adjustments, a study conducted by Luca Solca, luxury analyst at Sanford Bernstein, found that average prices for a basket of Louis Vuitton and Gucci handbags were 30-50 per cent higher in China and Japan than Europe compared with about 15 per cent a year ago. In the US, the same handbags were 20 per cent more expensive than in Europe, compared with 5 per cent a year ago.

Furthermore, many brands, including Gucci and Hermès, seem to have maintained artificially low prices in markets such as the UK, apparently to bolster spending by tourists and locals alike.

While these price differentials are a return to the norm in the sense that they reflect historical industry standards, differential pricing is more obvious than ever before.

Aided by information gleaned from frequent international travel, the internet and brands' own e-commerce sites, consumers are starting to question whether differences are justified, particularly in today's value-conscious environment, and especially in mature and expensive markets such as Japan.